UPDATE 1-Ford, Navistar settle engine dispute

* Say they settle all litigation between them

* Say ending current diesel engine supply pact

* Say Ford will make undisclosed payment to Navistar

CHICAGO, Jan 13 (Reuters) - Ford Motor Co (F.N) and Navistar International Corp (NAV.N), which have been locked in a dispute over a diesel engine supply contract for several years, said on Tuesday they had reached a settlement that brings the legal fight to an end and effectively dissolves a 30-year partnership.

In a joint statement, the two companies said they had reached an agreement to "restructure their ongoing business relationship and settle all existing litigation between the companies."

They said Navistar's current contract to supply diesel engines to Ford would not continue beyond year's end, ending a relationship between the two companies that began in 1979 but broke down in recent years over the development of a next-generation for Ford's F-150 pickup trucks, a top-selling vehicle in the U.S. market.

The current diesel engine supply contract, the one dating back to 1979, will end effective Dec. 31, 2009.

As a result of the settlement, Ford will make an undisclosed payment to Navistar.

Ford and Navistar said they would continue their diesel engine supply relationship in South America.